7th Pay Commission: The implementation of the recommendation of 7th CPC for millions of Central government staff and pensioners has affected India's domestic economy in many ways.

7th Pay Commission: The implementation of the recommendation of 7th CPC for millions of Central government staff and pensioners has affected India’s domestic economy in many ways. It is believed that distribution of salaries as per the 7th CPC recommendations has been one of the reasons behind the speedy recovery of Indian economy. The increase in salaries of those employed in the organised sector led to a spike in demand and consumption that benefited the economy.

The Seventh Pay recommendations were approved by Narendra Modi government on 28 June 2016. As per the recommendation of the 7th CPC, the basic pay of government employees increased by a factor of 2.57. The House Rent Allowance (HRA) was also revised by 105.6 per cent, which was almost the double of pre-CPC level.

Following the Centre, several states also either promised to hike salaries of state government employees on the lines of 7th Pay panel recommendations. Jammu and Kashmir state has already started to provide salaries to its staff as per 7th CPC recommendations.

The increase in HRA as per the 7th CPC also reportedly led to an increase in house rents in small and big cities.

RBI annual report 2016-17 had noted: “The implementation of HRA as per the recommendation of the 7th CPC for central government employees from July 2017 and the possibility of its implementation at the state level should strengthen urban consumption demand. An offsetting impact on aggregate demand could, however, emerge if state governments restrain or scale down capital spending, keeping in view the objective of fiscal consolidation.”

A research paper by RBI’s monetary policy department, reported in April this year, said that increase in HRA for Central government staff affected CPI inflation by nearly 35 basis points. “Ex-post analysis of CPI shows that the 7th CPC”s HRA increase pushed up headline inflation prints gradually from July 2017, with a peak impact of about 35 basis points (bps),” the research paper said.

The 7th Pay Commission was also one of the factors driving India’s economic growth under Modi government since its implementation. The RBI had noted in its annual report 2016-17 that private consumption spending alone contributed 2/3rd of the growth of aggregate demand. In the absence of the implementation of 7th Central Pay Commission recommendations and One-Rank-One-Pension (OROP) for defence personnel, India’s growth could have been lower by 2 percentage points, the RBI report had said.

” In fact, absent the implementation of the 7th Central Pay Commission and one-rank-one-pension (OROP) for defence services embedded in government consumption, real GDP growth would have been lower by 2 percentage points. Private consumption spending alone contributed two-thirds of the growth of aggregate demand,” RBI said.

Target 2019

Central government employees are demanding a hike in the minimum salary beyond the recommendations of 7th Pay Commission. A website for bureaucrats claims Modi government will likely increase salaries of Central government employees beyond 7th pay Commission recommendations before 2019 General Elections. FinancialExpress.com couldn’t confirm this news.

Some reports, however, say the Central government has not considered this matter at any level.